138. Good Times, Bad Times

Dear Gerard,

I am also an experienced expert in this field. In 2005, our revenues came entirely from brokerage and were transaction-driven. This is a volatile and exciting source of income, because it is impossible to predict. If no transactions are undertaken, we go home empty-handed with zero income. We got into trouble, because suddenly revenue stalled in some departments. This was partly due to the famous 80/20 rule that 80% of income stemmed from 20% of the customer base. And this very important group of our customers suddenly changed jobs or functions, so they were no longer customers for our institutional brokerage. We were also overweight in labour costs due to the excessive number of people in the back office, for who there was very little work due to computerization. We retained them, as we were a kind of family business. But in the end with the continued importation of eTrading, we had to take the decision to dismiss colleagues for economic reasons.That is very different than dismissing someone because they are not doing their job properly. With such a dismissal, you feel almost relieved after the announcement. But in this case it concerned people who had enjoyed working at our company for decades. The guidance that we had sought predicted that most people see the dismissal coming and this turned out to be true. The interviews with the employees involved were not pleasant, but everyone understood.

After this period, I decided to never again be dependent on a single service, a single product or a single dominant customer group. We are now on the path towards a broader and more solid revenue base which also includes private wealth management. This gives us a larger group of customers who each pay a fixed fee. We can now also use the knowledge we built up over decades when we were an institutional broker and use it in favour of our private customers. This includes product knowledge, market expertise, and market contacts. As we are wholesale oriented, we are able to pass cheaper purchase prices on to our retail customers. This is a win-win situation both for us and for the new customer group.

Regards,

Erik